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Our loans picks: This Is Money's five of the best personal loans

By Amy Andrew and Marc Shoffman and Emma Gunn

Published: 07:05 EST, 9 April 2013 | Updated: 03:29 EST, 1 June 2015

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Personal loan rates are at record lows spelling good news for borrowers who want to access funds for a car, home improvements or to clear debts and pay the money off steadily over time.

But loans can be notoriously difficult to navigate and a bit of a minefield if you are not equipped with the right information or are not the kind of borrower who will get the best advertised rate.

We highlight five of the best personal loans around below, complete with an explanation why, and explain how to go about getting the best deal for you.

New car? Many people take out a loan to cover the initial cost

When making our pick of the loans around we don’t just take the best rates from the comparison tables – we also scour the market for all-around winners.

However, you can also investigate the best loan for you personally using our deal finder, linked below.

Powered by our partner Moneysupermarket it offers a smart loan search - helping you to compare all the top deals that match your needs.

This is Money's five favourite loans

First things first...

• Are you trying to cut existing credit card debt?

RULES TO REMEMBER

If you plan to take on a loan, make sure you're up to scratch on the laws.

EU rules mean early part-repayments are allowed

Since 1 February 2011, partial overpayments are allowed on loans taken after this date.

Banks may charge you, but this is limited to a maximum of 1 per cent of the amount repaid (if the loan is for more than a year) or 0.5 per cent (if under a year).

Loan providers must allow you to pay off your loan in an early repayment. This is subject to a penalty which is usually one or two months interest.

If so, a loan probably won't be the cheapest option for you, as long as you do not have a large amount of debt and can try to clear it relatively quickly.

The whole point of balance transfer deals on credit cards are to shift card debts to them at a special cheap rate.

These rates will almost certainly be cheaper than loans for less than £1,000.

Providing you can transfer to a credit card, and will definitely pay it off before the 0 per cent deal ends, that's the best option. If you can't, make sure you transfer your balance to another 0 per cent deal.

Use our guide to find the best 0 per cent transfer credit card for you.

• Are you trying to cut the cost of a loan you already have?

If you are trying to switch to a loan with a cheaper rate, it's worth bearing in mind that this may not save you money. Some loans, especially older ones, will slap down hefty lock-in charges - so on balance you probably won't save much, if anything.

However, it is always worth checking up on your options. So check your small print to see if you can move and see what rates are around.

BEST BUY DEAL

M&S Bank currently offers the lowest rate on the market at 3.6 per cent on loans between £7,500 and £15,000, lasting over one to five years. It is the only lender charging both new and existing customers the low rate.

Sainsbury's Bank charges 3.6 (APR) per cent on mid-sized loans repaying between one and three years however, the rate is only offered to Nectar card holders (see below). Borrowers without a Nectar card are offered the slightly higher rate of 3.7 (APR) per cent.

Nationwide also offers the market-leading rate to its customers. Those holding a FlexOne, FlexAccount, FlexDirect or FlexPlus account can borrow between £7,500 and £14,999 when repaying over one to five years.

First Direct also offers a preferential rate to existing customers. It charges 3.6 per cent to its 1st Account customers.

Several lenders including Hitachi Personal Finance, Tesco Bank and Lend-to-save provider Zopa, currently offer the next best equivalent rate of 3.8 per cent.

Best for loyalty card holders

Sainsbury's Bank is offering a rate of 3.6 per cent on borrowing between £7,500 and £15,000 on its standard loan for between one and three years.

It's is also worth noting that the lender also offers a Rewards Loan, which offers 5,000 bonus Nectar points and double points for two years to loyalty card holders.

Don't forget the Price Promise

Exclusive deal: cut your interest rate by taking out a free Nectar Card

As an added bonus, Sainsbury's Bank has included a price promise for Nectar Card holders taking out its Standard Loan, which states if you can get a better deal elsewhere, it will beat it by 0.1 per cent.

To qualify, successful applicants must provide a written offer from the other lender in the same name as the loan offered by Sainsbury's within 28 days of the Sainsbury's Standard Loan being approved.

You must not have accepted the standard loan offer by signing and returning the Sainsbury's Loan agreement.

The loans must be compared on a like-for-like basis, based on features such as, but not limited to, length of loan, fixed loan amount and repayment structure (including interest and set up fees - if any).

The offer does not apply to any Sainsbury's Shopper Reward Loans.

If you are not a Nectar card holder, you cannot apply for either of the provider's loans. However this is easily remedied by signing up for a free Nectar Card.

As long as you swipe it in store or use it online within six months of applying for the loan, you can apply for the deal.

Although the process may seem a little long-winded for a reduction of 0.1 per cent, savings will add up over time.

However, bear in mind that multiple credit searches impact your credit footprint - if you do sign up to this deal you will have effective applied for two loans.

The offer may be higher depending on your personal circumstances, credit assessment procedures and other related factors.

Find out more about how to protect your credit rating

Best for no-frills

Hitachi offers a rate of 3.8 per cent - just behind the best-buy deal.

It is available for loans of £7,500 to £10,000 for up to five years, and has no set-up fees or hidden costs.

Applications for the loan are carried out online, but you can also call a member of the customer services team, who will go through the process with you.

The application process takes minutes and you will receive an instant online decision. Funds can be in your account the next day if you are accepted for the loan.

Applicants have to be aged 18 or older to apply for the loan with a good credit history, and have lived in the UK for at least 12 months.

They must also be in permanent paid employment, self employed or retired with a pension.

Best for M&S customers

CHEAPEST LOANS BY PRICE

Cheapest loans under £5,000

£1,000 - £1,999: Lendable - 5.6 per cent

£2,000 - £2,999: Lendable - 5.6 per cent

£3,000 - £4,999: Lending Works- 5 per cent

Cheapest loans over £5,000

£5,000 - £7,499: Cahoot - 4.6 per cent

£7,500 - £14,999: M&S Bank - 3.6 per cent

Cheapest loans over £15,000

First Direct: 3.6 per cent (1st Account customers only)

Zopa and Cahoot: 4.2 per cent.

Currently M&S bank is offering a rate of 3.6 per cent on loans between £7,500 and £15,000 to both new and existing customers.

The loan can be repaid over 12 to 84 months with an option to defer repayments for three months.

There are no arrangement or set-up fees and you can apply online or by phone.

On all M&S loans, monthly repayments are fixed. You have the option of taking a 'repayment holiday' by deferring repayments for the first three months, although you will still store up interest. This will end up lengthening your loan term.

There are no arrangement or set-up fees and you can apply online or by phone.

To apply for an M&S Personal Loan you have to be a UK resident aged 18 or over earning at least £10,000 annually before tax.

Free perks: M&S Bank is offering rewards for those that take out a loan

Best for loans of more than £15,000

If you need to take out a loan for more than £15,000 there are several options.

Both Lend-to-save provider, Zopa (see below) and Santander-owned, Cahoot offer the best deal open to new and existing customers. The two lenders charge 4.2 (APR) per cent on amounts up to £20,000.

Cahoot offers the low rate to those borrowing between £7,500 and £20,000, repaying over one to five years.

Those applying for the loan must be aged 21 or over, with a minimum income of £5,000, without CCJs and never having declared bankruptcy.

Zopa charges the low rate on amounts between £15,000 and £20,000 with a repayment term over four or five years. It charges a slightly higher rate of 4.7 per cent for those borrowing up to £25,000.

Accountholders with First Direct and Santander also have access to preferential rates.

SAINSBURY'S BANK: BEST FOR BORROWING OVER £25,000

Sainsbury's Bank has extended the maximum amount on its Standard Loan from £25,000 to £35,000.

It charges those without a Nectar card borrowing between one and five years a rate of 6.9 per cent.

Those who hold the loyalty card can borrow at the same rate when repaying between three and five years.

But Nectar cardholders who can repay in either two or three years there is a rate reduction of 0.1 per cent to 6.8 per cent.

Santander offers the low rate of 4.2 (APR) per cent rate when borrowing up to £20,000 to those holding a Santander 123 or Select account. New customers are charged a higher rate of 4.7 (APR) per cent.

The term can range from 12 to 60 months.

The 123 account costs £2 a month but it comes with a range of benefits including up to three per cent interest on in-credit balances and cashback on your household bills.

Find out more about the account in This is Money's guide to the best current accounts here

Although Santander Bank matches the lowest rate available to anyone, you might be able to get a better rate if you already hold a First Direct 1st account.

The bank offers its accountholders a rate of 3.6 per cent on amounts up to £25,000 with a repayment term of between one and seven years.

Best for cutting out the middleman

Loan-to-save firm Zopa provides an exchange for lending between those with money to invest and others who want cheap loans, in return for a commission from both sides.

Lend-to-save sites offer extremely good deals for loans - but you have to pass their stringent tests to be eligible.

The tough stance on who they do and don't accept is in place to avoid defaults.

This kind of lending is growing in popularity - the obvious downside is that if the company goes bust, lenders may lose their cash. However, if you stick with well-established firms such as Ratesetter or Zopa you are much better protected.

Currently, the best personal loan rate offered by a platform of this kind is Zopa at 3.8 per cent over two to five years, borrowing between £7,500 and £15,000 on an unsecured loan.

There are no early repayment penalties but there are a number of additional costs including a one per cent annual fee.

In addition to the loan and the interest, you may also be charged an administration fee and credit rate fee with a lend-to-save site. The fees payable will be dependent on how much you would like to borrow, the repayment term and your personal credit profile.

There is nothing to pay up front, all the fees are spread out over the monthly repayments and are included in the total amount repayable.

ARE YOU ELIGIBLE FOR AN INTEREST-FREE SOCIAL SECURITY LOAN?

If you don't have any personal savings, before going for commercial debt it's worth seeing if there are any loans available from the government's social fund available to you.

The first are crisis loans, which are for emergencies or disasters - basically anything that endangers your house or family.

The next type are budgeting loans, which are interest-free loans for those receiving benefits. The minimum you can borrow is £100 and it can be used to spend on things like school uniforms or furnishings.